A Carbon Project Development Journey
by Vivian Bertseka, Co-Founder & Head of Climate at BlueLayer
Almost half of Forbes 2000 companies, a figure that has more than doubled in the last three years, have pledged to achieve Net Zero emissions. To fulfill those commitments, companies should first focus on reducing emissions within their operations and supply chains. However, experts agree that internal decarbonisation efforts alone won't suffice. To offset hard-to-abate and unavoidable emissions, these companies must also invest in beyond value chain mitigation (BVCM) strategies, which include carbon projects.
Carbon markets are essential for connecting companies committed to Net Zero with project developers who are actively removing or avoiding carbon emissions. To meet scientific consensus, carbon markets must expand to over 10 GT annually by 2050, a 40x increase, accounting for about 20% of global emissions.
Why Scaling Takes Time
1. Local Stakeholders
Setting up and scaling a nature-based (NbS) carbon project, e.g. reforestation or mangrove restoration, is hard, time consuming and involves coordinating many different parties.
Given that the majority of NbS projects are based in the Global South, developers need in-depth knowledge of the country of operation, regulations and local population. Local customs, power dynamics and gender norms are all likely to dictate how you choose a site and devise strategies for engaging communities in a project.
Developers also need to bring the right partners on board like contractors, carbon consultants and auditors. These partners need technical expertise relating to the project’s activity and methodology. Developers need specialists with experience in a particular activity, as a reforestation project is significantly different from a mangrove or reduced deforestation project.
The pool of potential partners with the right combination of geographic and activity expertise is, to say the least, shallow. There are long waitlists for high-quality partners, often giving developers the dichotomy of having to join waitlists or bring onboard partners with less experience. At BlueLayer, we’ve seen this as a major limiting factor in developers' ability to set up projects quickly.
2. Choosing a Methodology
Most carbon experts will tell you that the setup phase of a project is the most important determinant of a project’s quality.
This phase starts with choosing the right project methodology. Methodologies act as the rules or blueprint for a developer to follow. There are many different methodologies for the same or similar activities, for example, there are three different methodologies in Verra’s VCS to choose from for an Afforestation, Reforestation or Revegetation (”ARR”) project.
This choice has only gotten more complicated recently as Standards (e.g. Verra’s VCS), who assure that the rules are followed, are constantly making wholesale revisions to methodologies in response to recent criticism. For example, Verra recently revised one of the core ARR methodologies, and those revisions, while resulting in higher quality credits, mean that some practices on the ground will have to change for projects to be compliant. With methodologies in flux, projects in the early stages are often forced to make another difficult decision: Risk using an outdated methodology, which would potentially reduce their project’s quality and result in a lower price per credit or wait for an unknown amount of time for a new methodology to be finalised, tweaking the project setup and re-applying to the Standard using the new one.
3. Setting up MRV
Another important step for a project developer is setting up the Monitoring, Reporting and Verification (MRV) framework for a project. The MRV framework essentially acts as the performance tracking for a project.
Designing the MRV framework involves deciding how to measure outcomes on the ground and what third- party tools to use, if any. Depending on the activity type, different tools might be more appropriate at different project stages, as seen in the example below, which shows monitoring tools for an ARR project.
Developers must also decide on a monitoring schedule and how often they will report these measurements to the aforementioned Standards. These decisions will define how often credits get issued and will have financial and cash flow implications for the project. Developers need to carefully weigh the risks and benefits of different tools and monitoring cycles.
4. Pesky PDDs
After you have completed the project design, a developer will submit a Project Design Document (a “PDD”) with one of the local or international Standards, like Verra, Gold Standard or Plan Vivo.
PDDs can be over 200 pages long and are typically written in coordination with the aforementioned consultants, forcing developers to deal with long wait times. Stakeholder management with multiple third parties and consultants is a massive headache for developers and can cost upwards of $50k per PDD.
To get to this stage, a Project Developer has gone through many years of managing various partners and workflows, as seen in the picture below:
5. Validation
While previously, this approval process only took a few months, waiting times have ballooned to around 1.5 years. This has a cascading effect, leading to long waits for projects to get approval and become eligible to issue credits.
Once a PDD is approved by a standard like Verra, a project becomes validated and can issue its first credits, subject to submission of monitoring data and a further approval from the Standard body.
For many projects, the first issuance represents their very first revenues received. This often comes 4-8 years after the first expenses have been incurred by the developer, during which time a project is sustained with capital contributed by the developer or its investors.
So what can we do?
It’s clear we need to find ways to accelerate the growth of high-quality projects and minimise their time to market without sacrificing oversight.
We need both a higher level of commitment from buyers of credits, more investment capital flowing to the space and also an ecosystem of tools, advisors and partners that the developers of these projects can rely on.
There is no silver bullet to fix this and we need innovation across different areas to drive change:
We should be helping the Standards, most of which are non-profit entities, to modernise and digitise their process, enabling more oversight (which drives quality) with shorter wait times (which enables speed of execution).
We also need to build more digital tools for project developers. While software is not a panacea for the industry and cannot solve complexity on the ground, the right software tools can help centralise data and streamline communication between different partners. This would make it easier for project developers to both manage and display the great work they are doing.
We need to work together to find complementary solutions that scale when jointly implemented. Technology systems that are built to connect with each other, open platforms that share data and finally standards for quality, traceability and transparency that are easy to follow and implement.
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Thank you for sharing this insightful email. The journey towards achieving Net Zero emissions is indeed complex and challenging, requiring collaboration and innovation across various sectors. It's encouraging to see the commitment of companies towards this goal and the recognition of the importance of carbon projects in offsetting emissions. The detailed explanation of the challenges faced in setting up and scaling nature-based carbon projects sheds light on the intricacies involved in this process. I agree that finding ways to accelerate the growth of high-quality projects while maintaining oversight is crucial.
Innovation, collaboration, and investment are key to addressing these challenges and driving meaningful change in the fight against climate change.